Recalibrating functional claiming: A way forward
What are the misconceptions and what should be done to recalibrate functional claiming standards accordingly?
Challenges of arbitral awards in the Singapore courts on the basis of a breach of natural justice are on the rise – while success rates are notoriously low. So what does and doesn’t work in setting aside an arbitral award on this ground?
Challenges of arbitral awards in the Singapore courts on the basis of a breach of natural justice are on the rise. There have been at least seven in the past 18 months (compared with a total of just 19 in the period 1985–2005) and the Chief Justice of Singapore, Sundaresh Menon, made some astute observations on this topic at an arbitration conference in London in July this year.
The success rates for such challenges are notoriously low – so what motivates arbitrating parties to rush to court? In this article, we explore what does and what does not work in setting aside an arbitral award on this ground.
In international arbitration, a breach of natural justice is a ground on which an aggrieved party may rely to set aside an arbitral award in the Singapore courts. Natural justice is an administrative law concept that encapsulates two famous maxims:
Unlike administrative law cases, in international arbitration the arbitrating parties submit their disputes to an arbitral tribunal for resolution, and agree to accept the finality of an award. This caveat emptor approach, buyer beware, underlies the principles to which the Singapore courts adhere in applying this deceptively simple test for a breach of natural justice under section 24(b) of the International Arbitration Act (IAA).
Under section 24(b) of the IAA, a court can set aside an award if there has been a breach of the rules of natural justice in the making of an award which has then prejudiced the rights of the aggrieved party.1
In a 2001 case,2 the Singapore High Court set out the elements that need to be established to set aside an arbitral award for breach of natural justice:
a which rule of natural justice was breached
b how that particular rule of natural justice was breached
c in what way the breach of natural justice connected with the making of the award
d how the breach prejudiced the rights of the party concerned.
This test has been applied and approved in subsequent cases.3
The Singapore courts adopt a test of actual or real prejudice to the aggrieved party in the making of the arbitral award – a lower threshold than the test of ‘substantial prejudice’ in the English Arbitration Act 1996, for example.
The application of the test for breach of natural justice is best enunciated by the Court of Appeal in L W Infrastructure (at ):
‘the real inquiry is whether the breach of natural justice was merely technical and inconsequential or whether as a result of the breach, the arbitrator was denied the benefit of arguments or evidence that had a real as opposed to a fanciful chance of making a difference to his deliberations. Put another way, the issue is whether the material could reasonably have made a difference to the arbitrator, rather than whether it would necessarily have done so.’
“Singapore courts … adhere to a policy of minimal court intervention in the challenges of arbitral awards.”
Party autonomy is sacrosanct in international arbitration, but runs the attendant risk that parties, having chosen their arbitrators, accept the finality of an arbitral award (good or bad) with no avenue for appeal.
The Singapore courts respect the choice of parties to resolve their disputes in arbitration and adhere to a policy of minimal court intervention in the challenges of arbitral awards. However, they also attempt to uphold fairness in deciding a challenge on the basis of breach of natural justice.
Common arguments which failed in support of breach of natural justice challenges include the following:
Some of these are technical challenges and usually disguise the true nature of the compliant – that the arbitral tribunal made errors of law and/or fact in the arbitral award.
The following are examples which have succeeded in supporting a challenge of an arbitral award for breach of natural justice:
The arbitral tribunal’s finding(s) must demonstrate a dramatic departure from the submissions of the parties, e.g.:
It is equally important, if not more so, to show that there is a causal nexus between the breach of natural justice and the arbitral award, and whether the breach prejudiced the aggrieved party’s rights (AKN v ALC at ).
While an aggrieved party may go to the Singapore courts to set aside an arbitral award for breach of natural justice, arbitrating parties must also accept the risk that the arbitral tribunal may well make errors of law and/or fact which are not within the remit of a challenge of an award.
To avoid having to rely on this tenuous ground, parties should exercise great care in their choice of arbitrator. At every point of the arbitration proceedings, parties should ensure that the tribunal is aware of the essential issues that need to be addressed in an arbitral award.
KC Lye is a partner and Katie Chung is a senior associate in the Singapore office of Norton Rose Fulbright.
Under section 24(b) of the IAA: ‘Court may set aside award 24. Notwithstanding Article 34(1) of the Model Law, the High Court may, in addition to the grounds set out in Article 34(2) of the Model Law, set aside the award of the arbitral tribunal if –…
(b) a breach of the rules of natural justice occurred in connection with the making of the award by which the rights of any party have been prejudiced.’
S 24(b) of the IAA (in pari materia with s 48(1)(a)(vii) Arbitration Act (Cap. 10) governing domestic arbitrations) tends to be relied on together with Article 34(2)(a (ii) or (iii) of the UNCITRAL Model Law 1985.
John Holland Pty Ltd (formerly known as John Holland Construction & Engineering Pty Ltd) v Toyo Engineering Corp (Japan)  1 SLR(R) 443.
Notably in the Court of Appeal decisions in Soh Beng Tee & Co Pte Ltd v Fairmount Development Pte Ltd  3 SLR(R) 86, L W Infrastructure Pte Ltd v Lim Chin San Contractors Pte Ltd  1 SLR 125, BLC & Ors v BLB & Anor  4 SLR 79, and AKN v ALC  3 SLR 488.
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